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As expected, Windows 8 tablets not price competitive with Android or iPad

Don’t say I didn’t warn you, but reports from Taiwan are now confirming what I’ve said since the beginning of this year. Windows 8 tablets will not be price competitive with Android tablets and the iPad, even for the ARM version, so expect the Intel tablets to cost even more.

ARM situation is very bad

Manufacturers from Taiwan are complaining that Windows 8 RT licenses will cost them $90-$100 per device. That may not seem that much at first (even though it should compared to Android, which is free), but this $100 comes on top of a cost of components of around $300 for an ARM tablet. So Microsoft is increasing the tablet’s price by 33% with their Windows 8 license.

Keep in mind that as a general rule of thumb, and unless the manufacturers are a very efficient supply-chain (like Apple) or unless they minimize their profit margins as much as possible, then the retail price of these consumer electronics products should cost around twice as much as the price for the components at retail. Because you still have to account for stuff like salaries, research, distribution, packaging, marketing, and finally the profit for the company.

So if they use $200 components, add the Windows 8 license of $100, and double up to get the retail price that’s $600 at a minimum for a Windows 8 ARM tablet that will not compete with the high-end Android tablets or the iPad in terms of specs and performance. To get the latest specs, including high-resolution displays like the one in iPad (which should appear for Android tablets soon, too), you need to pay at least $300 in components like Apple does.

Intel situation, even worse

Even so, if you add the Windows 8 price now, and double it up, you get an $800 tablet. But let’s be generous and say it’s only a $700 tablet – without LTE, and without any significant number of tablet apps (still talking about Windows RT tablets so far). Remember when Motorola tried putting a $700-$800 tablet sans apps on the market; remember the Xoom? That didn’t go so well, did it?

For Intel tablets, the situation is even worse. ARM chips at the high-end cost around $20-$25. A dual core Atom (which is what the first Windows 8 tablets will have) should cost up to $100 with its affiliated components. Again, when you double up these component costs, the number get pretty crazy, and if these tablets would have exactly the same specs, build material, slimness, etc, as the high-end ARM tablets and the iPad, the only way the manufacturers could make them cost only 50% more than the competitors, is by seriously undercutting their own profits.

Not much of a choice

So the customers of Windows 8 tablets will be stuck between getting a significantly more expensive Windows RT tablet that has about the same battery life as Android tablets and iPad. At least in theory it should work well, since I presume they removed some of the bloat from the x86 version, and it will only have to deal with light HTML5 apps anyway – or they will have to choose an even more expensive Atom tablet, quite likely twice as much as some high-end ARM tablets by then. This won’t even have anything close to retina display because Atom can’t handle such high resolutions (ironically, this might bring them in line with the ARM tablets pricing which do have high-resolution displays, but hopefully customers are smart enough to realize the difference).

Granted, the x86 version will have more apps than the RT version, but those apps will not be optimized for touch, and perhaps even more importantly, they won’t be optimized for running on such low-end hardware. Why is it that Android or iOS apps can seem to run just as fast, if not faster than your normal programs on a quad core PC (which in theory, it should be 50x faster)? Because those are mobile apps, imagined and built to work on mobiles and be lean and fast.

The x86 Atom tablets will not benefit from that, and the experience should be as poor as it ever was on a Windows tablet – expecially a low-end one. I will safely assume that a $1200 Core i5 tablet, like the one they used to demo Windows 8 earlier this year, is out of the question for most people. Plus, the battery would last only 2-3 hours under heavy use.

Conclusion

I think there will be quite a few manufacturers pushing for Windows 8 tablets, because they are desperate for a successful alternative to the iPad, but I fear they will be disappointed when they realize most people won’t be interested in buying much more expensive tablets than what’s already available.

Microsoft made a mistake choosing Windows 8 instead of WP7 to be their tablet OS, but it was an intentional “mistake”. I knew they would do this even way before they announced this move – because I knew how Microsoft would think in this situation. Instead of doing anything that jeopardizes their Windows revenues (in their minds), they’d rather choose to ask $100 for their tablet version than $15 like for WP7. This is the main reason they chose it.

They were afraid that this will be the future, a future where they have to charge $15 for their OS. And I expect them to dramatically raise the price on Windows Phone 8 OS, too – maybe to $50 at least. That would make them even more expensive than the high-end Android phones, but still with 2 year old hardware.

Unfortunately for Microsoft, they have to realize that this is not 2005 anymore. They now live in a world where the free open source Android dominates in the mobile market, and that puts pressure even on their other products’ pricing. They can’t just keep on charging $100 per license as if nothing has changed.